Good morning, everyone, and welcome to Grupo Bimbo's fourth quarter results conference call. If you need a copy of the press release issued yesterday, it is available on the Company's website, at www.grupobimbo.com.

Before we begin, I would like to remind you that this call is being recorded and that the information discussed today may include forward-looking statements regarding the Company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the Company's press release regarding forward-looking statements.

I will now turn the call over to Mr. Daniel Servitje, Chairman of the Board and Chief Executive Officer of Grupo Bimbo. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today. I am here with our BBU President, Fred Penny; our Treasury VP and Head of IR, Tania Dib; and several members of our finance team.

As you might know, my father, Don Lorenzo Servitje, a founder of Grupo Bimbo, passed away earlier this month. Our family has received many demonstrations of affection and, above all, thousands of testimonies of how my father touched the lives of many people from very different ages, interests, and groups. It is clear to all of us in Grupo Bimbo that we have now his legacy to carry on.

Now, let's take a few minutes to talk about 2016 performance, and we welcome any questions you may have at the end. 2016 was a good year for the Company. Organic volume, growth, and market share gains in key categories and brands; a healthy innovation engine; targeted acquisitions; manufacturing and distribution efficiencies; and improvements in the consolidated cost structure, coupled with the benefits of geographic diversification, allow us to generate both top and bottom line expansion.

In terms of regional performance, let's start with Mexico. December was a record sales month, capping off a good year in every channel and most categories. Net sales for the year rose 8%, with more than 4% volume growth and a healthier price mix.

As a particular note, our sweet baked goods category continued its positive trend and recovered volumes. We had good product innovation, like out new latte snack cake, and a healthy performance in premium and mainstream bread brands like Oroweat, Villagio, and others.

At the operating level, there were greater efficiencies arising from projects to increase productivity across the supply chain, while reduced marketing and distribution expenses on a relative basis reflected new processes and savings generated by zero-base budgeting. These underlying efficiencies helped to reduce pressure at the gross margin level coming from the impact of a much stronger US dollar on our raw materials and, in fact, helped generate record operating and adjusted EBITDA margins.

Looking ahead at 2017, it will be a challenging year. Along with the FX rate impact on raw material costs that will add pressure to our margins, we expect as the year evolves external and internal political and macroeconomic factors to weight on consumption. We will need to keep working to find efficiencies across the operation and prioritizing volume and consumer needs.

Moving on to North America, FX helped us in peso terms, with sales rising over 16%; in dollar terms, however, there was a slight decline, of about 1%. Let's dissect that number, though, because it masks important underlying information.

Commercial bread consumption in the United States is soft industry wide, led by declines in private label. BBU grew its branded volume and sales, primarily driven by Sara Lee, and offset by declines in our non-branded business. Eureka, our [DSD] organic brand, grew significantly, although it's quite a challenging category from a profitability perspective.

Looking forward, we will continue to drive profitable growth and productivity improvements through continued optimization of our product portfolio, greater efficiency within our supply chain, and improved [DSD] execution.

And for Canada, commercial bread volumes were also soft. There was growth in other baked categories, such as breakfast goods and tortillas, as well as in organic and artisanal varieties. We believe that by following a rational pricing strategy and continuing to compete through superior quality, freshness, and brand investments, we will keep our bread business on track for profitable growth.

We made notable progress on the ERP migration in Canada and across our North America frozen baking business. It's a complex and expensive process, which will finally be completed in 2017.

We will continue to streamline our manufacturing footprint this year as well, following the one plant closure in 2016 and greater consolidation of our operations. In fact, we doubled the capital investment in productivity projects year on year, which helped absorb inflation and led to savings.

Over all, operating income in North America rose over 40% and adjusted EBITDA margin expanded 110 basis points, on the back of lower raw material costs, a decline in restructuring activity in the US, and lower distribution expenses in the region, which more than offsets the investments in Canada and the frozen bread business and a non-cash charge for pension liabilities that I will touch on shortly.

Moving on to Latin America, net sales rose almost 20%, primarily due to the revaluation of most currencies versus the Mexican peso and higher volumes in most countries, notably Peru and our Latin Centro division. There, as throughout the region, we have invested in route efficiency and increased our distribution reach.

At year-end, we made a small acquisition in Colombia, Panattiere, a frozen bread business that will enable us to participate in the in-store and food service bakery channels.

Our most significant challenges in 2016 were primarily the macroeconomic conditions in two of our key markets, Brazil and Argentina, as well as increased restructuring expenses both in manufacturing and distribution that happened in those two businesses. During the fourth quarter, we inaugurated a plant in Cordoba, Argentina, reflecting our commitment to develop the category and business beyond the capital cities. For the region as a whole, we experienced a higher inflationary environment which affected general expenses.

These factors contributed to a higher operating loss in the year for that market.

Moving on to Europe, the acquisitions of Donuts Iberia helped drive annual sales up by more than 50%. I'm pleased to report that organic volume performance also continued to trend in the right direction for the region, driven by gains in key brands like Oroweat and the Rustik Bakery, as well as in our snack category.

At the operating level, we benefited from lower raw material costs and distribution expenses, as well as lower restructuring costs, which led to a 660 basis point expansion in the operating margin. Moreover, for the first time since 2011, we achieved positive EBITDA.

As for the Donuts Iberia integration, it remains on track, and we expect most of the associated integration expenses of around EUR70 million to be incurred during 2017. Above and beyond that, however, we will also be investing to modernize our acquired plants. So, this year will be of a higher expenditure in order to strengthen the long-term profitability of the region.

As you saw on the press release, we registered some non-cash charges this period. This included a MXN1.7 billion charge in Latin America, mainly due to some brand impairments, goodwill, fiscal provisions, and the disposal of assets, among others; and a net $21 million charge related to multi-employer pension plans, or MEPPs, liabilities in North America.

As disclosed over the past few years, we have been proactively working to identify and implement solutions for a number of our underfunded plans. Solutions involve the exiting or restructuring of our participation in order to manage future risk and provide certainty. The charge included the actual or expected restructuring of three MEPPs, which was partially offset by the impact of higher discount rates.

In addition, I would like to talk about our tax rate, which was higher versus last year, at 50.3%. The main factors contributing to this increase were: our conservative approach on canceling deferred income taxes arising from accumulated losses in Brazil and no longer carrying deferred income tax benefit in some other countries; better earnings in the US, which, as you know, were naturally subject to a higher tax rate; a higher taxable base arising from inflationary gains related to our debt; and lastly, the partial deductibility of certain fringe benefits in Mexico arising from the fiscal reform implemented back in 2014.

As for the balance sheet, our debt position was higher year over year because the revaluation of the US dollar increased the peso value of our US dollar-denominated debt, which accounts for about two-thirds of the total. However, our financial position is healthy. The leverage ratio declined year over year to 2.8-times, despite the higher FX rate, and the tenure of our debt gives us a lot of flexibility.

Looking ahead, I don't want to discount any of the short-term challenges, some of which I have already mentioned: the investment in our new ERP systems, not just in Canada but globally; the integration of Donuts Iberia; the lack of a commodity tailwind which we benefited from these past years; a more challenging macroeconomic environment in Mexico and in some key Latin American markets; and the increasingly competitive environment within our markets.

However, we remain optimistic about our long-term prospects, as we are strategically positioned thanks to our financial flexibility, geographic and portfolio diversification, our brand equity, and ongoing investments in manufacturing and distribution. On this same note, we expect CapEx to come in line with 2016, in the order of $650 million to $700 million.

That concludes my comments this morning. So, we're now ready for the question-and-answer session. Gary, could you help us with that?

I would like to start from the end of your remarks. It sounds quite cautious on 2017 outlook. So, maybe I was hoping you could clarify that, especially when it comes to the outlook for North America, for the US, specifically. How are you thinking about your sort of margin profitability progression that we've seen occurring for some time? How much dilution should we expect from Canada? And maybe if you can qualify the restructuring expenses and investments -- and you partly did -- but how long may that occur? As compared to what we've seen in the past for the US where, arguably, it was a different story, different scale, and number of acquisitions. So, maybe I'm a bit surprised on sort of a more cautionary note on the North America outlook, at least for the way I interpreted your comments.

And then, on the other division, maybe for Europe, it was a very positive surprise in terms of profitability. I was wondering if that is the new normal or a function of scale? You alluded to more investments there. So, maybe some help on that front?

And then, lastly, going back to North America, we keep hearing -- the lack of growth is something that is certainly widespread for all consumer, or most, food categories. But there's a lot of talk around mix improvement, packaging changes and investment, SKUs rationalization, brands clusterization, all these sort of initiatives. And I just wonder at what point the industry [operators] will see the benefit of this more visibly, given that consolidation has already occurred. And the tail it's still pretty long, but somehow the big players are where they need to be. So, where do you stand in that process, also relative to other food categories even though you don't necessarily participate in all of them?

Well, that's a lot of questions, Luca. If it's okay, I'll let Fred, our BBU President, to talk about the US. And then, I'll touch on the other subjects which were, as I can recall, a little bit on Canada and what is sort of the outlook of that business and the restructuring efforts there; our thinking on Europe, specifically on Iberia; and that's it.

Let me start by saying that we feel good about our Q4 and 2016 performance in terms of the US BBU, in particular. I certainly expect that we're going to see continued earnings improvement and EBITDA margin improvement as we go forward.

Although I would echo Daniel's comments, be a bit more cautious on it because we had meaningful commodity tailwinds this year that we're not going to have next year. And I'd say commodity and energy outlook heading into 2017 is, I would say, not material in terms of a change year over year on -- or not material in terms of meaningful improvement again. So, it's going to shape up to be a bit of a different year.

Relative to growth, we grew in tonnage and dollars in our total branded business. Over all, we were slightly down because of declines in the non-branded segment that Daniel referenced, particularly the private-label category which we have seen continue to run negative, and that cuts across numerous categories, not just in bread.

But our total branded business grew, and it grew on the strength of our strategic brands. And I expect that that's going to continue, going forward. That's certainly what we're working hard to do. So, we exited the year with some momentum, and hopefully we can continue to carry that as we go forward.

Relative to the commercial bread category in total -- whether you look at it in IRI or, I suppose, in Nielsen -- for 2016 it was down in tonnage again, as it had been in prior years. There was some marginal improvement in the fourth quarter. On a dollar basis, it was more like flat for the year and then in the fourth quarter.

So, having said all that, there are growth opportunities to be had, but it takes some work. And we're looking at -- we continue to work on innovation, new products. We continue to look at potentially other alternatives in terms of categories. But we're really heavily, as we were in 2016, focused on growing our strategic brands and our best brands.

Sorry. Before we move to that, just to contextualize, for the profitability profile of the industry and what do you think -- what still needs to happen for that acceleration to materialize, given that for a long time consolidation was a very important variable. That has happened. Is there something in the industry that makes you more positive that over time --?

I'll give you another example. Mexico is certainly surprising on the SG&A front. I think from my perspective I always assume that was almost at best. And I'm surprised the positive on SG&A efficiency initiatives really coming from the Mexican business now in terms of expectation relative to North America.

So, I'm just curious, at the industry level what needs to happen for the profitability profile to really jump, given that consolidation has already occurred?

Well, I'll make a comment on the category. Certainly, I'm sure all of the participants in the category in the industry would like to see the total category, as measured by commercial bread, growing as opposed to declining. And I'm sure we're all putting forth our best efforts to try to do that.

Well, that may or may not happen. In the fourth quarter, it was flat in tonnage versus down the prior quarter. So, can it over time grow? I suppose that's possible. It's trying to figure out where the consumer is moving, because consumer preferences are shifting. Where they're consuming is shifting, whether it's different channels, whether it's in the food service environment. But I believe, Luca, that there's growth opportunities out there.

Now, let me be more specific about the profitability question, and I'll speak to that strictly for my business, for BBU. And I've said this in prior calls. We continue to have opportunity across our entire supply chain to take cost out, become more efficient, and drive improved earnings performance by doing that. And that really is largely a function of the fact that the legacy businesses that existed that now have become BBU all pretty much, to varying degrees, had and continue to have some opportunity to be more efficient and to be more productive.

And so, we worked hard on that in 2016 and we saw the benefits of it. And we're going to continue to do that, going forward.

And the last comment I'll make is relative to our price realization and trade optimization efforts which I've talked to in prior calls, as well. We made, in my view, strong progress in the last two quarters on that, with our realization being up in bread quarter on quarter meaningfully and up for the year, year over year, as well. So, that's another area that we're certainly focused on, keenly focused on, and we continue to try to drive improved trade optimization, trade realization.

On Canada, I would basically support the same comment as Fred mentioned. There is a lot of work going on I would say in both countries, the US and Canada, on continuing to refine our manufacturing and logistics platform.

And let me tell you that we see that these businesses are in need for investment and modernization. And that's a source of long-term profitability once that you're over these projects.

But we're finding a sizable amount of opportunities in this regard and given, I would say, our understanding of this industry and sort of the capacity of being a global business in this regard to apply lessons learned in other markets to these countries. And that's, I would say, what we're doing and we will be keep on doing as a source of improvement in profits in the coming years.

So, we'll see that happening this year in Canada and over time, obviously, that will decrease.

In Europe, I would say that in both of our operations in Europe -- in the UK and in Iberia -- we ended up getting good growth in the latter part of the year and also less costs as the ramp-up of our manufacturing projects or the new plant that we put up in Spain matured. So, that will reap some of the benefits of our investment and expenses in the prior years.

So, the outlook of the existing business before the integration, I would say it's much better. The project that we have undergoing in Spain and Portugal, it will be unfolding basically beginning on April. And from then on, it's really a matter of deploying all the project of the integration, both on manufacturing as well as on distribution.

As we have said before, we are very hopeful that we have very strong brands coming out of this integration and we'll have a sustainable and profitable model both from the [D&D] side as well as on the manufacturing footprint at the end.

So, this is not -- if you want sort of an idea of Europe this year, it's going to be a year where we will be reflecting these integration expenses. But we're very hopeful that 2018 and then on is going to look much better than ever before.

So, that will be the questions, and maybe we're ready for the second person?

My questions are related to Mexico. After the solid revenue growth that you reported in 2016, mostly driven by volume improvements, I was wondering if you can comment about what do you expect or how volumes should perform this year, as inflation is high and GDP growth is expected to decelerate? That's my first question.

And my second, I don't know if you can give us an idea of what do you expect in terms of EBITDA margin this year, considering the impressive margin that you registered this year that it was even better than 2015? I don't know if you can comment about those things.

Well, the year I would say has started good. So, my only comment there is that so far, so good. The concerns that I would say everybody has in Mexico about this year, we have them, too. But so far, they have not materialized.

And our teams are, as always, really looking for opportunities and leaving no stones unturned. So, we're hopeful that we'll do our best. The FX did do and do have an impact on our cost of goods sold, and we're trying to adapt to this environment where the market will be tighter.

So, that's I would say as much as we see this year happening on margins.

In May, at Bimbo Day, you talked to us about ZBB and that you had a goal in mind: I believe, MXN400 million in savings. Can you talk to us about how much of that of the ZBB did we see in this fourth quarter and how along are you in the process? Should we have some also in the first half? And do we expect, as you mentioned back then, most of those savings to be put back into marketing and such, rather than coming into the margin? That's the first question.

The second one is just around MEPPs and this $21 million charge. Thanks for clarifying that for us. It's really about the bakers and confectionery MEPP that I'm most interested in. Can you give us an update with that? I know you've been working with the trustee for, I guess, three years now, and it's been underfunded for that period. What kind of information or comments can you give us, if any -- sorry, I know it's not a (inaudible) topic -- about the baker and confectionery MEPP and the possibility to resolve or take a withdrawal on that one?

Well, just a general comment on ZBB. And I think the other question -- and maybe if you want to touch also, Steve, on ZBB, that's fine, as well -- BBU will answer the MEPPs question.

Yes, ZBB is a multiyear project. We started on a test pilot in one of our divisions here in Mexico, in Barcel. Now, we basically have this rolled up in all the organization, in all the divisions in the Company.

And the progress that we're making it's good. At the beginning, it's mostly training. It's mostly organizing our efforts on understanding the different components of cost and the categories and assigning people responsible to each category and developing sort of the pipeline of projects to work on.

So, we have already started to benefit economically, but it's going to be mostly, I would say, on the 2018 and beyond years on the impact of the benefits. But the project it's working well, and we're very happy with the progress made so far.

On the marketing side, in some countries we have increased our marketing spend. And in general, I would say that we're using the resources, the funds, better than we did before. And I would say that we're improving our efficiency in the spend there, as well. That's as much as I would like to comment.

Sure, Daniel. This is Steve Mollick. Regarding MEPPs and specifically B&C, we're not prepared and won't comment on a specific MEPP.

But I will say we participate in 30 MEPPs, as we've communicated in the past. The contingent withdraw liability is stable. We have a provision for that liability that's about 50% of the total. And we continue to be proactive in terms of managing and derisking our MEPPs liability.

In addition, a comment on ZBB. I don't have much more to add relative to Daniel's comments. We're in relatively early stages of our ZBB implementation. It's really creating visibility to our spend, visibility from a price perspective and a consumption, and it's about driving behaviors across our organization. And so, we expect to see benefits in the future.

I just would like to understand a bit better the US and Canadian sales. And in terms of -- I know about 52%-53% of sales are generated in the US and Canada, and my assumption is that the exports from Mexico to the US and Canada are quite small. Can you give me a figure in terms of percentage of those sales that occur in the US and Canada that are products that are exported from Mexico?

And then, in the worst-case scenario if there was this kind of tariff war and Mexico in its retaliation imposed tariffs on grains and such imported from the US to Mexico, what percentage of your grains -- I don't know whether it's corn, wheat, soy, or whatever -- comes from the US in terms of what you produce in Mexico? To what extent do you rely on commodity imports from the US?

Well, as you know, baking is mostly a local industry. So, we don't do a lot of exports. It's a smaller part of our business. Although it's a great business and we love it and we hope it can grow, it's not a sizable part of our business. It's much less than -- it's a single-digit range.

On commodities, all commodities are basically dollar denominated regardless of where they are produced. So, that's where the impact of the FX comes.

We do import a good part of our commodities, of our wheat commodities, from Canada and the US and also from other countries in Latin America, [some oil] grains. But mostly the imports come from futures in the North American market.

So, if this thing that you're referring to happened to be in effect, we certainly have, as I mentioned, other countries besides the US to import from, and that's something that our suppliers do on regularly. So, I think at the end of the day everybody would or could adapt to this circumstance if it really came into effect.

Thanks. And can you just give me so I can --? Because people have asked me, and I just say that, yes, I believe that exports from Mexico to the US are very minimal and not significant. But it's great to give them a figure.

So, of the sales that occur in the US, you say less than single digits. I don't know. Does that mean 5%, 3%, 2% of US sales are products that are brought in from Mexico? Do you know a number?

The exports that happen from Mexico to all the markets are 5% of the revenues of our Mexican operation. That includes a big part of the US, and we also export from Mexico to other markets: Central America, Canada, and even Latin America.

A quick one. First, regarding the non-cash charges there. I remember last year we had a bunch of them and this year again. Just wondering if you believe now they are to be done with, especially in Latin America?

And still in this region, margins here remain in the negative, even though we've seen currency appreciate in many of these markets that should be lowering raw material prices. So, just trying to reconcile here when you expect maybe this to benefit you and get the Latin America margins up again?

We regularly with the auditors happen to review all these figures at the end of the year. So, my comment would be that this is sort of the quarter that we will be basically finalizing all the issues on a yearly basis regarding impairments, MEPPs, and whatever. So, yes, it's something that should be basically something that be reviewed every fourth quarter in the coming years, as well.

Secondly, specifically on Latin America, I would say that the numbers and the results are not good. We're not happy with it structurally. I think that we're better than ever in terms of what we're doing in the marketplace, how our operation is performing from a standpoint of efficiency, and our go-to-market strategies are also in the right direction.

So, Latin America, it's a mixed bag of -- maybe it's like 17 countries. So, we have some that are doing very well, some others where we're investing heavily, and others where we have issues that are some of them beyond our control because they're more politically and macroeconomically affected, and some others like Brazil and Argentina where the issues are macroeconomical but we also had some structural issues that we're putting our efforts and our money and our attention to fixing them for the long run.

So, I would say that, specifically in these two countries, that's where the bulk of the hit came from. And in both cases, I would say that the outlook for this year it's a much better one, but we remain committed and optimistic about the decisions that we're making in these markets.

What I would say is that we're very sensitive to volume in our business in Mexico and we don't want to tighten the equation that we have in terms of prices and volume. So, we're very careful now on hitting the right spot. And if needed in order to maintain our volumes to be less aggressive on pricing, we'll be.

So, I would say that we're managing the business in a way in which we can create more value in the long term, and that's our hope. So, if you see some hits during this year, it will be good for the business in the long run. But I would say that we're not expecting big changes in either way.

First, let me delve a little deeper into the question Pedro just asked. We understand that the decision is basically not to pass through prices, or at least not do a full price passthrough of the depreciation you've seen in Mexico. So, my question is what's driving the decision? Is it a market share decision in the long run? Or, has your perspective about the elasticity of the consumer in Mexico changed? Or, what's driving the decision, which is clearly differentiated with what most other companies are doing in Mexico?

And I guess the second one is on LatAm. Obviously, despite the margin performance, which was not very great, sales did very well. And a bit of that had to with FX, and I presume some of that also had to do with inflation in Argentina. So, I was wondering if you could quantify to us how much of that increase in sales came from FX and inflation versus operating drivers?

Well, on the prices, let me tell you that we're not bypassing the opportunity to raise prices if needed, but the only thing that we are managing this is to be very careful so that we at the end of the day create more value for our consumers and for us in the long run. And so, if it was misinterpreted as that we were not going to transfer the costs that we have been impacted, we will but we're doing it very cautiously. That's my only sort of a comment on this one.

In LatAm, the business, as I would say, reflected in some places double-digit volume gains and, in some others, also double-digit drops in the last quarter. So, it's a mixed bag.

And what we're doing there is making sure ourselves, especially high inflationary markets, to make sure that we are on top of the inflation and that we can maintain our margins on a healthy basis even if that affects our volume, as it did in some countries significantly.

So, all in all, Latin America, it's not one entity. It's really a mosaic, and our teams in the region are using different strategies depending on the particularities of each country.

So, the outlook for this year, as I mentioned, it's much better. But as always with Grupo Bimbo, we will be doing the right things for the long term even if it implies something that might hit a quarter or even the year.

Okay. Great. That's very clear. And if I may do a follow-up on taxes? Now that you've adjusted to the way deferred tax benefits are treated in some locations, what do you think we can expect on an effective tax, going forward?